Banking & Finance

Maintaining privacy

Why China Life covets privately-held Minsheng Bank

Keep it private: regarded as the bank of entrepreneurs, Minsheng is a target of state-owned insurer China Life

Originally a seller of vitamin supplements, Shi Yuzhu is nowadays best known as the “Chief Gaming Officer” at Giant Interactive Group, an online gaming company that has made him one of China’s richest men.

Shi is now making a name for himself as a defender of private enterprise, as he is conducting a high-profile campaign to keep the state from taking control of Minsheng Bank, China’s only large privately-owned banking institution.

His enemy is insurance company China Life, a shareholder in Minsheng that has announced that it plans to increase its stake in the bank.

China Life is Minsheng’s second largest shareholder, according to the bank’s interim report, with a 4.31% stake. Shi owns 2.77% via his company Shanghai Giant Lifetech, putting him fifth on the list.

As befits a new media tycoon, Shi has waged war via his weibo (China’s Twitter equivalent). Minutes after China Life’s vice president Liu Jiade said during an earnings call that the insurer was interested in increasing its Minsheng holding, Shi posted: “China Life, please do not plan to hold a controlling stake in Minsheng Bank. China’s only major private bank… should not retrogress into a state-owned bank.”

When Liu was asked whether China Life intended to take a controlling stake in Minsheng, he replied that it depended on how the bank would consider the move.

Shi responded with the following: “Save some room for the private economy. Minsheng Bank without private mechanisms will lose core competencies and bid farewell to rapid growth.”

Shi’s diatribe reveals a growing backlash against increasing state control of the economy (a trend WiC first pointed to in issue 30 – known as guojinmintui ‘the state advances as the private sector retreats’). Private sector tycoons like Shi now appear to be fighting back. It is this wider context that makes the Minsheng situation all the more newsworthy.

In late 2010, Minsheng’s core capital adequacy ratio and capital adequacy were both lower than the banking regulator’s minimum requirements. Refinancing was an immediate concern, so the bank held meetings with major shareholders to see if they would participate in a private placement. During the meeting with China Life, the insurer’s representative made his move: “I will take whatever [additional shares] you don’t want,” he told Minsheng executives, reports Nation and Economy Weekly.

In many ways, it makes sense for China Life to seek closer ties with Minsheng, not least in providing additional sales channels for bancassurance products. In this regard the insurer can learn from its experience investing in Guangfa Bank (formerly known as Guangdong Development Bank) which has since become a major seller of China Life products.

But China Life could have a broader plan. Its biggest rival in the insurance business is Ping An, which through control of Shenzhen Development Bank is able to operate across the financial spectrum in insurance, banking and investment.

Taking control of Minsheng would allow China Life to compete as a financial conglomerate.

There is plenty of debate over whether it is even feasible for China Life to take control of the bank. Minsheng’s president, Hong Qi, also denies that this is the insurer’s intention. Even if it was, the diversified shareholding structure would make it difficult for China Life to acquire a dominant position: “Even with a larger stake, one will not necessarily win a voice on the board of directors or the general assembly of shareholders,” Hong told Capital Week.

One analyst told the newspaper that China Life would have to acquire a 20% stake, which would be difficult since most of the major shareholders would be unwilling to sell. This means that the insurer would have to try and complete the deal via the public market. Even if it were possible to find enough available stock, the buying effort would push up the share price, making the deal extremely expensive.

So unless several of the large shareholders succumb to a juicy offer for their stock, it looks like Minsheng’s investors need not worry for now about a China Life takeover.


© ChinTell Ltd. All rights reserved.

Exclusively sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.